Our data is valuable to Google. Google's business model is based on using what Google knows about us to target advertisements. The more data that Google has about us, and the more accurate that data, the more precisely they can target advertising, and the more an advertiser will be willing to pay for that advertising.
We currently give our data to Google for free. It is a condition of using free services like Google Search, GMail, Google Maps, and so on. However, imagine for a moment that, instead of giving our data to Google for nothing, Google had to pay us for our data. How much do you think Google would be willing to pay each year for your data? Would Google be willing to pay $1000 per year? $10,000? $50,000? Google is incredibly profitable. Surely our data must be incredibly valuable.
In a post last month on the Asymmetric Information substack, Dave Heatley provides an indication of the answer to how valuable our data are to Google:
Last week, a Google witness in the US v. Google anti-trust trial accidentally blurted out that Apple gets a 36% cut of Google’s ad revenue from being the default search engine in Apple’s Safari browser... This was the final piece of data I needed to scrape together an estimate of the average search revenue that Google receives from each Apple user... As Apple users are, on average, richer than non-Apple users, we can treat this as an upper bound on the value to Google of an individual search user...
How many Apple users are there?
As of February 2023, Apple had more than 2 billion active devices. While iPhones predominate, this total also includes iPads, Macs and Apple Watches. This corresponds to 1.4bn individual users...
What does Google pay to advertise to them?
Google reportedly paid US$18 billion a year to be Apple’s default search engine in 2021. More recent estimates put this at around US$20bn.
That means Google is paying Apple just US$10 per year per device, or US$14 per individual Apple user, to be able to show search-related advertising.
The big reveal: just how valuable is your data to Google?
And how much revenue does Google make from that “investment”? In the ongoing US v. Google trial, University of Chicago professor Kevin Murphy, appearing for Google, revealed that Google pays Apple 36% of the revenue it earns through search advertising.
Using that figure, Google’s average annual revenue is US$28 per Apple device, or US$39 per Apple user. After paying fees to Apple, net revenue is at most 64% of that — that is, US$18 per device or US$25 per user. (The actual figure will be smaller, as it costs Google to operate their platform for both searchers and advertisers.)
So, there you have it. Your personal data is worth no more than US$25 (NZ$43) per year to Google.
If Google was required to purchase access to our data, Google would be willing to pay no more than US$25 per year to do so. If you wanted to hold out for a better deal, Google would simply say, "no thanks", and you'd lose access to their services.
So, if the value of our data to Google is just $US25 per year, why are Google's revenue and profits so high? The answer is scale. If Google has four billion regular users, each providing Google with data worth US$25 per year, that is up to US$100 billion of revenue per year (and in fact, Google's advertising business generates even more revenue than that). Even though each user's data is not worth much, the sheer number of users means high revenue and profits for Google.
Now think about the other side of our bargain with Google. How much value does Google actually give us in exchange for our data? I'd suggest that it is much more than US$25 per year. Think about all the Google services that you use. If you had to pay real money for them (and for any alternative to them), how much would you be willing to pay? We don't have an answer to that question, but we do know that people would be willing to pay between US$600 and US$2000 for access to Facebook (see here and here), which they also receive for nothing. I'd suggest that Google provides much more value than Facebook does, and so we'd be willing to pay more for Google services than for Facebook.
Taken altogether, we give our data to Google, and that data is worth US$25 per year to Google. Google provides us with services that are worth far more than US$25 per year, probably in the high hundreds of dollars or more per year. If we marketised both sides of this exchange, we could charge Google US$25 per year for our data, but Google could charge hundreds of dollars or more per year for their services.
We may gripe about Google (and Meta, and other big tech firms), and there are definitely negative aspects to their activities (more on that in my book review tomorrow). However, when you actually look at it, the big tech firms generally do appear to be giving us a good deal.
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